Why No Free Markets in Online Games?

I was talking to a friend recently who just started playing Minecraft again. While he basically enjoyed playing the game, there was a certain level of unease, because he wasn’t “doing something meaningful”. He was referring to the economic sense of the word meaningful (i.e. making money), because having a good time with friends certainly isn’t meaningless - it’s just not lucrative.

It got me thinking, does it have to be that way? There is no law in the universe that makes having fun with friends and making money mutually exclusive. The answer has to be found somewhere else.

There are of course ways of making money playing games. There is esports for one. However, as far as I know “real world sports” only accounts for a small fraction of world GDP. So it’s strange that it would be different in the virtual world. The majority of world GDP still comes from doing the equivalent of “crafting”. So the questions is, why aren’t those activities valuable in online games?

The thing is, they probably are valuable. In most cases however, the value is disconnected from the real world. Terms of service often explicitly prohibit trading and game mechanics make it harder if not impossible to trade1.

So why don’t these games have free markets with real world money? A few guesses:

People don’t want free markets to creep into every aspect of their lives. Despite the fact that the evidence on the benefits of free markets are overwhelming, people seem to dislike them. I think this is best explained through evolutionary psychology, but the bottom line is that people just won’t like them. They will tolerate them to the extent that they have to, but as far as their free time is concerned, markets have to stay out.

People don’t really mind markets (in-game auction houses seem to do fine), but game publishers don’t want them. As soon as any real money is involved, things tend to become complicated. Government agencies might want to get involved, which means time is now moving at 1/10th of the speed. Not really an option in a highly competitive market like online games. Bitcoin might help somewhat, but since your game isn’t running on the blockchain, the people in black suits still know which doors to kick in.

Publishers actually figured out how to handle regulators, they just want to have a monopoly on their stuff. Game designers can create items as they see fit and sell them through their own stores with monopoly pricing power, while players can only create them according to whatever game mechanics the designers set in place, if at all. Since it wouldn’t help their business case, when people can resell those items at a lower price to other players, they won’t allow it.

Being a trader becomes the dominant strategy no matter what the actual game mechanics are. As far as I can tell, this is what happened with the Diablo 3 real money auction house. In my opinion it failed because Diablo is essentially a slightly more sophisticated version of Cookie Clicker, where “better” can be defined mathematically. In the real world or Second Life “better” is highly subjective, giving rise to fashions and other strange social phenomena. While there are improvements in the real world that are objective as well, like going from LA to SF in 35 minutes instead of 2 hours, these don’t come into being by routinely slaying monster for 18 hours a day with an expected drop rate of 1 out of 4,000.

Minecraft is a particular interesting example, because unlike other online games, it’s mostly user generated content that makes it interesting. The game designers came up with a clever sandbox, but inside the sandbox players are free do what they want:

Somebody comes up with a clever way of doing something.

Somebody farms a lot of resources that are needed to build something.

Somebody helps someone else build something.

Somebody would like to see what other people have built.

Somebody would like to “own” something that other people have built.

In the real world, these would all be considered economic activities. However, in Minecraft these things happen by themselves without any money, not even play money. I want to make the argument that this state of affairs is unfair towards content creators and unnecessary as well.

I have a nephew who used to play Minecraft. While I was envious that he was learning valuable business skills at such a young age with a bit of 3D modeling on the side, his parents thought he was “wasting his time”. I’m pretty sure, that if he would have been able to earn real money, his parents would’ve felt different. Kids aren’t expected to earn money, especially not while playing with their friends, so any non-negative income would’ve been pretty impressive. Unfortunately that wasn’t possible, because free markets aren’t part of most games by design.

What I’d like to see more are games that have been designed from the ground up with free market economies in mind. They would feature:

A simple game mechanic that allows for user-generated content. Something as simple as Game of Life can give rise to ridiculously sophisticated designs. Such designs could be valuable if they were embedded within a larger game context.

An official market that allows players to trade designs and/or items they’ve earned through game mechanics. In order to finance the development of the game, the market takes a fixed share, say 30%. If players are unhappy with the fees they are free to trade OTC or create their own market. Due to Metcalfe’s law the official market would be the preferred one anyway.

Optional: A game element that requires a skill that is at least somewhat transferable to the real world. In the case of Minecraft it’s a simplified version of 3D modeling. Maybe it’s possible to do the same for chemistry or biology.

These points combined could make for an exciting game, that lets people acquire essential business skills in a playful manner. At least some of the players could make a small profit as well. Game designers could offer the game for free, while financing it via fees from the official market. And if for nothing else, my friend could feel a little less like wasting his time playing the game.

Naturally, when there is something valuable, people want to buy it and others want to sell it. If obstacles are in the way, people will find ways around them. This is why there is a vibrant “black market” for virtual goods. Also, the rise of the “free to play” model gives us an idea about the willingness of some people to buy virtual goods. ↩︎